Federal Reserve Chair Jerome Powell indicated that further interest rate reductions may not be necessary as the US economy shows signs of strengthening. Following the Federal Open Market Committee’s (FOMC) decision to maintain the federal funds rate between 3.5% and 3.75%, Powell highlighted a “clear improvement” in the economic outlook and noted stabilization in the labor market.
The FOMC voted 10-2 to hold rates steady, with Governors Stephen Miran and Christopher Waller dissenting in favor of a quarter-point cut. Both dissenting members have ties to President Donald Trump’s administration, with Miran on leave from a senior Trump aide position and Waller among potential candidates to succeed Powell as Fed chair.
Powell emphasized that recent data reflect accelerating economic growth, easing inflation, and steady employment levels. He stated, “The outlook for economic activity has improved, clearly improved since the last meeting, and that should matter for labor demand and for employment over time.” Despite this, Powell cautioned against overstating the labor market’s improvement, noting it is showing signs of stabilizing but remains uncertain.
Market expectations currently anticipate no rate changes before June, by which time Powell’s term as chair will have ended. The Fed removed language from its statement that previously highlighted increased downside risks to employment.
Regarding inflation, Powell described the situation as “modestly positive,” although the Fed’s preferred inflation measure ended 2025 at 3%, above the 2% target. He attributed much of the inflation overshoot to goods prices affected by tariffs, which he characterized as one-time price increases unlikely to lead to sustained inflation.
Powell declined to specify conditions that might prompt future rate adjustments and refrained from commenting on the Department of Justice’s ongoing criminal investigation into the Federal Reserve. He reiterated his support for central bank independence, describing it as “an institutional arrangement that has served the people well.”
When asked about his plans following the expiration of his chairmanship in May, Powell said he had not made a decision and did not indicate when he would do so. He also explained his attendance at a recent Supreme Court hearing concerning President Trump’s attempt to remove Fed Governor Lisa Cook, calling it “perhaps the most important legal case in the Fed’s 113-year history.”
Financial markets showed little reaction to the announcement, with 10-year Treasury yields steady near 4.25%, a slight decline in the dollar from earlier highs, and minimal change in the S&P 500.
